From the Virginia Society of Certified Public Accountants - Presented
by Dean Knepper, CPA, CFP®

SMART WAYS TO SPEND YOUR TAX REFUND

(April 1, 2007) -- Have you been dreaming about using your tax refund to buy
that shiny new plasma TV? Don’t do it, cautions the Virginia Society of
CPAs. You have better things to do with your money – and it is your money.
While many people view their refund check as a gift from the government, nothing
could be further from the truth.

The money was yours all along — you just gave the government an interest-free
loan by allowing Uncle Sam to withhold too much money from your paycheck. So
why not think of your refund check as a second chance to do something smart
with your money?

Compromise

Okay, if you just can’t resist using your tax refund for something fun,
consider spending 80 percent wisely and splurging on 20 percent. For example,
instead of blowing your entire refund on a week’s vacation, plan for a
long weekend trip or a special night out.

Destroy debt

One of the best ways you can use your tax refund is to pay down credit card
debt. Not only will you reduce — or hopefully eliminate — your monthly
credit card payments, but you can save money on the interest you would have
paid. If you have several credit cards, pay off the one with the highest interest
rate first, then work your way down.

Buy some peace of mind

Most financial experts recommend that you set aside at least six months of
income in an emergency fund. Without an emergency fund, you could end up dipping
into your investments or relying on credit cards to see you through a bout of
unemployment or a wave of unanticipated expenses. Keep the money in a savings
or money market account that you can easily access in an emergency.

Bring it home

If you’re a homeowner, one of the best ways to spend your tax return
is to invest it in maintaining or improving your home. A fresh coat of paint,
an updated bathroom, or some new landscaping not only increases the value of
your home, but improves your quality of life.

Get smart

How about using your refund to take your career to the next level? Sign up
for a course and learn new skills. If you’re thinking of changing jobs,
attend a conference or a seminar where you can network with others in your field.

Fund your retirement

Consider using your refund to open or add to a traditional or Roth Individual
Retirement Account (IRA). Both offer tax advantages and can help ensure a secure
retirement. The contribution limit for 2007 is $4,000. Taxpayers who are age
50 or older can contribute an extra $1,000.

If you’re one of those people who get a large refund year after year
and you’re not contributing the maximum to your 401(k) plan, think about
lowering your tax withholding for 2007 and using the extra money to bump up
your retirement contributions.

Think tuition

If college education costs are in your future, use your refund to start or
add to a 529 college savings plan. The tax-free status of withdrawals for qualifying
education expenses was set to expire in 2010, but last year’s Pension
Protection Act made the benefit permanent.

Do some good

Donate a portion of your refund to your favorite charity. Not only will you
be helping someone in need, but you may earn a tax deduction for next year’s
return.

Get a jump on payments

Consider putting some money aside to pay for annual bills, such as insurance
premiums and health club memberships that you tend to forget about until they
come due.

Take stock

Have you been telling yourself that you’ll start investing when you have
some extra money? This is your chance to make good on your word. Mutual funds,
which are less risky, are a great way to get started.

Change your withholding

If your CPA agrees that a change is appropriate, complete a new W-4 form, increasing
the number of personal allowances you claim. This adjustment will reduce the
amount of tax money withheld during each pay period and increase your take-home
pay. Just be sure that you have a plan in place for using that extra money in
your paycheck to invest, save for retirement, or avoid debt.

Come up with a plan

A comprehensive financial plan is a great way to make your refund pay off.
Make an appointment with a CPA who can help you plan your financial future.

The Virginia Society of CPAs is the leading professional association
dedicated to enhancing the success of all CPAs and their profession by communicating
information and vision, promoting professionalism, and advocating members’
interests. Founded in 1909, the Society has nearly 8,000 members who work
in public accounting, industry, government and education. This Money Management
column and other financial news articles can be found in the Press Room on
the VSCPA Web site at www.vscpa.com.